Richard Company is a distributor of electronics. The company has been making losses for some times now. This is shown in contribution format income statement as follows:

Sales $1,000,000

Variable Expenses $390,000

Contribution Margin $610,000

Fixed Expenses $625,000

Net Operating income (loss) $(15000)

With a view to solve the losses incurred, the company prepared segmented income statement. The accounting department has developed the following Division

East Central West

Sales 250000 400000 350000

Variable Expense

As % of sales 52% 30% 40%

Traceable Fixed Expenses 160000 200000 175000

Required:

1. Prepare a contribution format income statement segment by divisions.

2. A marketing department has proposed an increase in the west division monthly advertising by $18,000 based on the fact that this measures will increase the west division sales by 25%. Assuming that the estimate are accurate by how much would the company net operating income increase (decrease) if the proposal is implemented?

2b. would you recommend the increased advertising cost.